Northrop (NOC) Wins $35M Deal To Support E-2D Hawkeye Jet

Defense giant Northrop Grumman Corp.’s (NYSE:NOC) business unit, Military Aircraft Systems, recently won a delivery order against a previously issued basic ordering agreement from the Naval Air Systems Command, Patuxent River, MD. The previous order mandated incorporation of a flight management system into the E-2D Advanced Hawkeye aircraft.

The contract is valued at $34.5 million. Per the terms of the new contract, Northrop will integrate, install, test and certify the flight management system. Work will be carried out in Woodland Hills, CA and Melbourne, FL. The company will utilize fiscal 2015 aircraft procurement (Navy) funds to complete the work by Sep 2020.

A Brief Note on Hawkeye Aircraft

Hawkeye is an airborne, all-weather, tactical, early-warning aircraft used by the Navy. E-2D is the fourth version of the E-2 Hawkeye. The technology and gadgets fitted in this aircraft increase its visibility on targets far away. E-2D Advanced Hawkeye has a structurally distinctive design – a rotating rotodome and four vertical stabilizer tail configurations that provide 360-degree surveillance at all times.

Northrop is also supported by other industry leaders on this program. Lockheed Martin Corp.’s (NYSE:LMT) unit, Lockheed Martin Naval Electronics and Surveillance Systems, supplies the principal AN/APY-9 radar system. On the other hand, L-3 Technologies Inc.’s (NYSE:LLL) unit supplies the ultra-high frequency electronically scanned array antenna for the Hawkeye. Meanwhile, Raytheon Company’s (NYSE:RTN) Space and Airborne Systems provides the T-56-A engines.

The Hawkeye jets, which have been used for several purposes like surveillance and missile tracking, has proved itself indispensable to the Navy in recent times.

Our View

In the light of rising security threats due to growing terrorism, the U.S. government has taken initiatives especially in the Intelligence, Surveillance, and Reconnaissance (ISR) field. In this regard, the administration included $1.2 billion in the fiscal 2017 budget and made an allotment of $4.5 billion over the Future Years Defense Program (FYDP) to expandISRsupport for counterterrorism.

Naturally, this has inspired other countries, who have realized the urgent need for ISR technologies, to follow suit. This is likely to immensely benefit Northrop. The company boasts a strong focus on strengthening its ISR wing, which has helped it maintain a stable earnings stream based on the changing needs of the defense landscape.

To further expand its ISR capabilities, Northrop has lately engaged in improving the features of its Triton unmanned aircraft system (UAS). The UAS has recently completed formal lab testing and a successful first flight of an improved software suite. This should enable Triton's early operational capability deployment in the Pacific next year.

Further, the company successfully flight tested the MS-177 multi-spectral imaging payload on Global Hawk UAS, further expanding its mission capability. This is the first time the sensor has been flown in a high altitude, long range autonomous aircraft. It represents a new benchmark in imaging ISR sensors. We believe that these recent developments will further demonstrate the value of Northrop’s ISR capabilities in front of both the U.S. government and international customers. This, in turn, will allow the company to win more notable contracts like the recent delivery order, in the days ahead.

Price Movement

Northrop’s stock has returned 18.1% in the last one year, underperforming the Zacks categorized Aerospace–Defense industry’s gain of 30.9%. This could be because higher operating expenses continue to partially impact the company’s profit margin. Moreover, in a highly competitive environment, customers might get attracted to similar products offered by its peers at a lower price, which remains a major concern.

Zacks Rank

Northrop currently holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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